Brent crude could slump toward a level it hasn’t seen since December 2018 prompting panic in oil dependent economies like Nigeria.
The dire forecast would mean deeper output cuts from OPEC and its allies, according to one of world’s biggest oil traders.
Nigeria’s fiscal situation is already near crisis level with debt growing astronomically amidst failing revenues.
Macroeconomic headwinds and rising supply will chart a course toward $50 a barrel for the global benchmark over the next six months, which is about 20% lower than where it’s currently, Ben Luckock, Trafigura Beheer BV’s co-head of global oil trading, said during an interview in Singapore.
It’s likely to return to a range of $70 to $75 in the medium to long-term, a level cheap enough for consumers but valuable enough to make producers money, he said.
But for the next six months at least, prices are likely to drift lower before spurring OPEC+ to cut further and U.S. shale drillers to reduce spending, slowing down one of the fastest-growing sources of output, he said.
Brent crude added 0.8% to $62.90 a barrel as of 12:34 p.m. Singapore time. It has averaged about $65 this year, and was last below $51 in late December.
A lower price “is one of the few things that either galvanizes OPEC, makes it harder for shale to perform, or stimulates demand,” Luckock said at the trading house’s office in the city state. “I can see us drifting toward $50 in the short term, but I think the medium to long term price is $70 to $75.”
The Organization of Petroleum Exporting Countries and its allies including Russia have been working since 2016 to balance global markets through output cuts, but at current price levels, Trafigura sees the coalition fraying.
Iraq has shunned its commitments, while stalwarts like Saudi Arabia and Kuwait are seeking to restart a 500,000-barrel-a-day neutral zone field next year, said Saad Rahim, the trading house’s chief strategist and global head of research.
